Knowledge that Transforms

An extended Cobb-Douglas production function is developed and estimated in order to examine the extent to which the decline in measured productivity in underground coal mining can be attributed to (1) changes in safety conditions which reflect movement along a product transformation frontier relating safety and marketable output and (2) a shift downward of the entire transformation surface. The model incorporates work-related accidents as a joint output and accounts for the discrete nature of the technological choices available in underground mining. The results indicate that movements along the product transformation curve relating accidents and marketable output do not account for the decline in measured productivity. This decline instead reflects a shift downward of this frontier - a real decline in potential production of marketable output. The non-linear pattern in technological change parameters and differences in these parameters across technologies indicate that a variety of factors have influenced productivity trends including CMHSA and the 1974 contract between union and management. 14 references

A major goal of social programs in a time of fiscal austerity is to focus available assistance on those households in the greatest need. This seemingly simple dictum has become increasingly difficult to follow as the dynamics of poverty have been clarified through analysis of longitudinal panel data in recent years. We can illustrate the importance of these dynamics using the following findings about the future incomes of the 22 million people in poverty in 1967.

AT least since Kaldor (1935), a number of economists have argued that indivisibilities and accompanying economies of scale in spatially extended economies can negate the zero profit result generally associated with free entry.' The essential argument is that if there are industries in which transportation costs are non-negligible and size economies call for firms that are large relative to local demand, even the most intense competition need not result in a zero profit equilibrium. Recently, Eaton and Lipsey (1978) have provided the analytical underpinnings for Kaldor's largely intuitive argument and demonstrate that pure profits can remain even with free entry of new firms and price competition. Eaton and Lipsey (1978, p. 467) suggest that their result depends critically on the.existence of the following conditions: (1) the average total cost curve is declining over some initial range; (2) customers are geographically spread out and intermingled with firms; (3) transport is costly; and (4) once the firm enters the market it has location-specific sunk costs.2 This paper offers an empirical investigation of the non-zero profit argument as applied to the U.S. cement industry. On a priori grounds, the cement appears to meet the necessary conditions for existence of positive, site associated profits. The existence, or at least the belief that the a priori conditions are satisfied has provided a basis for using the as a representative case. Scherer (1980, pp. 252-258), for instance, offers a textbook example of entry deterrence through plant location strategy that combines elements of space and the standard deterrence argument.3 Scherer then notes that, In an interview study of plant-size and location decisions in 12 industries across six nations, the author observed by far the strongest emphasis on geographic space packing as an entry-deterring strategy in the cement industry (p. 257). Scherer's example of entry deterrence via strategic plant proliferation is an extension of the Kaldor non-zero profit argument. However, the non-zero profit argument has at least one major drawback: profits in the cement have not been significantly above normal for any sustained period. The first section of this paper considers the evidence of the cement industry's approximation to the Eaton and Lipsey conditions and its historical profitability. Given the contradictory results between apparent satisfaction of the a priori conditions and the lack of supernormal profits a reformulation of the basic model is presented. An explanation offered here for the absence of supernormal profits is derivable from the property rights paradigm. The usual procedure in analyzing the reaction to new entrants in a spatially extended model has been to assign either initial locations to a set of firms or provide for a prearranged pattern of sequential entry. Both procedures implicitly assign property rights to locational rents and ignore the vital element that there will be competition to be the first plant in a given location.4 With demand for the product growing, competition to be first at a given location will insure that the timing of construction of the

RECENT economic developments have aroused substantial interest in the treatment in the Consumer Price Index (CPI) of the cost of shelter for homeowners.' From December 1977, when the latest version of the CPI was introduced, until December 1980, the all-items CPI increased at an average annual rate of 11.6%, while the homeownership component increased at an average annual rate of 16.2%. Relative to all of the other goods and services in the CPI, the homeownership component has increased by 17.5% over the same time period. If the relative price of homeownership had remained constant the growth rate of the CPI would have been reduced to 10.1%. The question which has been raised is whether the rapid relative increase in the homeownership component, which has had such an important impact on the CPI, truly reflects changes in the cost of shelter. This question is not only important, but difficult, encompassing many subsidiary questions and auxiliary issues. The purposes of this paper are threefold: (1) to outline briefly a conceptual framework for the CPI, which leads to a straightforward specification of what the shelter component of the CPI should measure, (2) to evaluate the theoretical properties of alternative procedures designed to approximate this measurement objective and (3) present empirical evidence on the operational difficulties involved in pursuing a new approach to shelter cost measurement. Two main conclusions are reached. First, on both theoretical and empirical grounds, a approach to measuring shelter costs for owner-occupants is preferred. Second, an estimated rental equivalence measure has grown more slowly over (at least) the past six years, than the official CPI homeownership component. Given the way in which the CPI is used to escalate both private and public expenditures, these results demonstrate that the choice of measurement technique has important distributional implications.

13'1 rev . .:. Division of Agricultural Sciences UNIVERSITY OF~IFORNLA Working Paper No. 139 R.I>J:~ FUTURES MARKET EFFICIENCY IN THE SOYBEAN COMPLEX Gordon C. Rausser and Colin Carter GIANNINI FOUNDATION OF AGRICULTURAL. ECONOMICS L.IBRAIli'V iM· ( California Agric'u l tural ElqIeriment Station Giannini Foundation of Agricultural Economics March 1982

T HE response of income-velocity of money to economic growth has implications for monetary planning in a developing economy. Velocity is the ratio of nominal income to money stock and decreases only if money stock rises at a faster rate than nominal income. A well-known hypothesis in this context is that of Friedman (1959) which states that ... in countries experiencing a secular rise in real income per capita, the stock of money generally rises over long periods at a decidedly higher rate than does money i.e., velocity declines. Ezekiel and Adekunle (1969) and Melitz and Correa (1970), in their international crosscountry comparisons, have found evidence largely in favour of the Friedman hypothesis. This, in its turn, has strengthened the hope for active growthoriented monetary planning-the extent of resources that can be transferred for investment purposes through non-inflationary monetary expansion increases as development proceeds.' Cross-section studies involving developed and developing economies do not provide satisfactory indications of what happens to velocity over time in any individual developing economy. Firstly, velocities have not behaved uniformly in all the developing economies. Secondly, international cross-country comparisons do not adequately explain why velocity changes in any individual economy. Is it because money is a luxury good (i.e., income-elasticity of demand for money is greater than unity) to the agents in the economy? Is it because economic development brings about structural changes in the economy which lead to the observed behaviour of velocity? Is it because monetary habits change in a systematic way? It is important to have time-series analyses of developing economies to provide answers to such questions. For example, in a study of Malaysia and Singapore, Short (1973) found that though velocity did move inversely to per capita income, this negative impact ... was overpowered by the change in monetary habits which the increase in bank offices caused... . The aim of this paper is to analyse the temporal behaviour of income-velocity of money in agricultural developing economies. In the literature on velocity and demand for money in developing economies, attention is focussed mainly on three issues: (i) the incomeelasticity of demand for money and in particular whether money is a luxury good or not; (ii) the growth of monetisation and changes in monetary habits, and (iii) the effect of the cost of holding money. One important factor which has suffered total neglect is the role of sectoral differences in money demand behaviour and the structural shifts in the sectoral composition of income that accompany development. Money demand behaviour may vary across sectors. This is true not only in developing economies but also in developed economies. For example, Goldfeld (1976) has found that the business sector and the household sector in the United States have different money demand functions. An implicit specification error is committed in the aggregative money demand or velocity equation whenever the sectoral-income-composition factor is omitted. On a priori grounds this factor should have special significance in developing economies where sectoral shares in national income change over time. In the absence of flow-offunds accounts and adequate data on sectoral money holdings for most of the developing economies, direct estimation of sectoral demand functions is not possible. Thus, an aggregative specification which incorporates the sectoral-income-composition factor is necessary to analyse the behaviour of velocity.

THE X-inefficiency costs of protection and industrial concentration have been topics of considerable interest in the literature on economic development. Balassa (1975) and Bergsman (1974), for example, have argued that protection, by increasing X-inefficiency, generates a major welfare cost which is not captured by traditional costs of protection calculations, and White (1976) has examined the relationship between inappropriate factor intensities which he associates with Xinefficiency and industrial concentration. The common theme which emerges from each of these studies is that public policy can have a major impact on economic performance not only by influencing factor proportions, but also by influencing the intensity with which a non-measurable input, X-efficiency, is employed. Despite the intuitive appeal of the X-efficiency concept there have been very few empirical tests of this hypothesis. This partly reflects the imprecise nature of the basic concept but also the lack of adequate micro economic data. X-efficiency clearly relates to efficiency within firms so that the most appropriate tests would rely on data on firm-level efficiency. In this paper we propose a direct test of the X-efficiency hypothesis using firm-level data. We build on previous work by Corden (1970, 1974) and Martin (1978) who showed how to model X-efficiency effects using the concept of managerial leisure. We extend these simple models of managerial behavior, emphasizing the role of the external managerial labor market. The model is then used to explore the relationship between changes in public policy, managerial effort and X-inefficiency. Certain predictions of the model are tested using cross-section data from a survey of firms in two subsidized industries in Ghana. Efficiency indices are computed on the basis of a translog frontier production function. Variations in relative efficiency are then correlated with several explanatory variables including the presence or absence of subsidy payments to the firm. Subsidized firms in both industries are found to exhibit higher relative levels of X-inefficiency.

M. Anne Hill, Female Labor Force Participation in Developing and Developed Countries-- Consideration of the Informal Sector, The Review of Economics and Statistics, Vol. 65, No. 3 (Aug., 1983), pp. 459-468

A LTHOUGH public policy analysts are revaluating income maintenance and income support programs, economists have devoted little attention to empirical research on one such program. Workers' Compensation (WC), a program in search of quantitative researchers, is about the same size as the Unemployment Insurance (UI) and Social Security Disability Insurance (SSDI) programs, and WC may have stronger supply effects than the UI program.' The state and federal no-fault insurance programs which constitute America's WC insurance system cost over $25 billion in 1980, and they covered, approximately, 90% of all wage and salary workers.2 During the period 1972 to 1978, the cost of WC as a percentage of covered payroll doubled and was probably equal to 2% of covered payroll.3 The WC program has enjoyed the support of both labor and industry. Employers favor this form of no-fault insurance because it guarantees a limit on the liabilities that they will incur due to the work-related injuries and diseases of their employees, and employees value the guaranteed medical expenses and payments that they receive under the program.4 Labor can view Workers' Compensation as a vast improvement over either the common law, which seemed to be designed to provide employees with strong safety incentives rather than to replace their lost income, or the employer liability laws that prevailed in most states until the early part of this century. Perhaps another reason for the position that the Workers' Compensation program has held in American social insurance has been that it is specialized in nature, and has constituted a relatively small share of the employers' overall cost. However, in recent years as the claim frequency under Workers' Compensation has risen dramatically and as policymakers and practitioners alike have consistently underestimated the cost consequences of liberalized Workers' Compensation benefits, analysts are beginning to reevaluate this very important form of social insurance. In this paper we analyze the two classes of Workers' Compensation injuries which account for most of the Workers' Compensation costs in the United States: temporary total and permanent partial injuries. In the next section we briefly describe some of the rudiments of the program after which we sketch an economic model of injury rates and suggest how they interact with wages and hours of work as levels of benefit change. In the fourth section of the paper we present empirical results which indicate that recent changes in the Workers' Compensation laws have had subReceived for publication April 1, 1982. Revision accepted for publication December 1, 1982. * Brigham Young University and Rutgers University, respectively. We wish to thank Steve Zrebiec for competent research assistance, and Monroe Berkowitz, Tom Brown, John F. Burton, Jr., Jennifer Field, and Fred Siskind for comments on an earlier draft. The views expressed herein are our own, and do not necessarily reflect those of Brigham Young University. ' Danziger, Haveman, and Plotnick (1981) guesstimate the reduction of work hours by transfer recipients as a percentage of total work hours of all workers as 1.2%, 0.7%, and 0.3% for SSDI, WC, and UI, respectively. 2 Dan Price's estimate (1981) that the WC program cost $20 billion in 1979 is a conservative one. He correctly attributes the full premium paid to private insurers, $14.3 billion, and to state funds to that year's cost, but he attributes only the benefits paid in 1979 by federal programs and firms that were selfinsured plus a 5%-to-10% markup for administrative cost to 1979 costs. This is equivalent to assuming that the federal programs and the firms which self-insure incur all of their WC losses during a calendar year. Actually, 1979 losses may be paid over many years, and injury or illness claims may arise many years after the end of calendar year 1979. These incurred losses and future claims should be fully reflected in current costs, but are so only to the extent that the actuarial price (premium) paid to private carriers and state funds is fully reflected in premiums collected. In addition, Price did not include the federal black lung benefits program funded by general revenues. 3Elson and Burton (1981) have examined the increasing trend in Workers' Compensation insurance. They present evidence which indicates that costs have doubled, for homogeneous classes of employers, in most states over the 1972 to 1978 period. 4There has been erosion of the certainty aspect of benefit payments due to litigation of claims. Vroman (1978) pointed out that certain permanent partial disability claims would be litigated with probability one. The high incidence of controversion has played a prominent role in calls for reform of the WC system and certainly was a factor in the state of Florida's decision to institute a wage loss system on August 1, 1979.